Era of Monetary EXPLOSION Will Bring The Worst Inflation of Our Lifetimes

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December 18, 2012 1:50pm NYSE:AGQ NYSE:GLD

Martin D. Weiss: Shortly after we took this family photo in 1951, Dad decided to buy a second home in Brazil, where we experienced the worst inflation of the 20th Century.

And as I’ll show you in a moment, the forces that created Brazil’s inflation were actually less powerful than those that are incubating globally in the 21st century.

In Brazil, we lived near a small town on the central highlands.

A few miles to the north, a distant tributary of the Amazon tumbled into a pristine waterfall from multiple directions, like a miniature Niagara.

And beyond was a mostly uninhabited plateau, which would later be transformed into the new capital, Brasília.

Two other American families also discovered this remote paradise: Janet Gaynor (“A Star Is Born,” 1937) lived nearby.

So did Mary Martin (“Peter Pan,” 1954), along with her son, Larry Hagman of “Dallas,” who just passed away last month.

But Broadway and Hollywood glitter meant nothing to me. I was too busy with my favorite activities — playing with animals of the forest and collecting Brazilian money.

Actually, the former activity wasn’t nearly as dangerous as you might think.

Collecting Brazilian money, however, was another matter entirely.

As always, Dad used the opportunity to teach me a lesson about money. He gave me a Brazilian cruzeiro note and said “You can save it if you want,” he said. “But years from now, you’ll need at least one thousand of these to buy anything.”

His reasoning: The Brazilian government was printingcruzeiros by the truckload. And later, to finance the construction of Brasilia, they would print even more, driving inflation into triple digits.

Sure enough, by 1967 the cumulative effect of rampant inflation was so extreme, the government had to do away with the near-worthless cruzeiro and replace it with the cruzeiro novo, worth 1,000 of the old.

But that was just the beginning. Brazil was forced to announce a second 1000-to-1 currency conversion in 1986 (to the cruzado) … a third in 1989 (cruzado novo) … and still another in 1993 (cruzeiro real).

The climactic finish of this currency conversion madness came in 1994, when a series of new laws created the real, each worth 2,750 of the prior currency.

To buy just ONE real when it was first issued, I would have had to save up 2,750,000,000,000,000 (2,750 trillion) of my original cruzeiros.

Laid side by side, those 1-cruzeiro bills would extend for 429 billion kilometers — the equivalent of 36 trips from Earth to Pluto — and back!

Unless You Experience it First Hand,
It’s Hard to Imagine the Social
Destruction that Inflation Can Bring.

When I was 13, we moved south — to the interior of the industrial state of São Paulo.

There, the standard of living was supposed to be better, but inflation was pervading every aspect of life. Due to inflation, children had to quit school to help support their families.

One 14-year-old student told me:

“I found a job working for the government as a street sweeper, but the government always paid us three months late. The problem was, in the three months we had to wait, my money could only buy half as much as it would have when I earned it!”

A college graduate in his prime of life said:

“I was lucky to get a job working nights in a supermarket. I joined a team of clerks who raced around the store from closing time to opening time the next morning raising the prices on every single item in the store. We did this every night. Even on weekends. Sometimes, prices were going up so fast, the store had to close in the middle of the day to do the same for many items.

Some of the consequences were tragic, even fatal.

Imagine you’re in biology class on a sunny afternoon. The teacher has opened the windows so a warm breeze flows through the classroom.

Suddenly a thunderous noise shakes the entire school. The largest building in town — still under construction — has suddenly collapsed.

A teacher, who lives next door to the construction site, bolts from the school only to find his home crushed under the rubble, his family still inside.

Again, inflation was the underlying cause: Cement prices were soaring. So to save money, contractors tried making their cement go farther by mixing in more sand. And to help cover surging costs, they also decided to add several stories beyond the original plan.

The city was one of the most prosperous industrial centers in the region. But no matter what the government did, inflation continued to spiral of control.

One day, the president announced an appeal to patriotism — “gold for Brazil.” All loyal citizens were asked to collect any gold they had in their home and donate it to the government.

Remarkably, many people obeyed. One woman even pulled the wedding ring off her finger, drove to town square and dropped it off in a big bucket as local officials shook her hand.

Then it was revealed that a lot of the gold wound up in the pockets of politicians. So the whole campaign backfired and inflation continued to accelerate.

Later, when inflation surpassed an annual rate of 2,000 percent, the government got so desperate it didn’t bother making public appeals. It summarily announced that everyone’s bank accounts were frozen and everyone’s savings were confiscated.

One computer programmer put it this way:

“Sure, the government eventually gave us all our money back. But they replaced the old currency with a new currency. So millions of citizens like me never really got our own money back. We got another kind of money that was worth far less.”

Unbelievable? Well, I can assure you every one of these stories is true — because I experienced them personally.

The young boy who went to work as a street sweeper was a neighbor.

The college grad who got a job changing prices in the supermarket was my friend.

The biology class was my class, and teacher who bolted from the school to rescue his family under the collapsed rubble was my teacher.

The woman who pulled her gold wedding band off her finger to donate to the government was my best friend’s mother.

The computer programmer whose savings were confiscated used to write programs for my company here in Florida.

All These Experiences Were Valuable Lessons. But
Nothing Has Prepared Us for What We’re Seeing Now.

Remember: In the second half of the 20th Century, rampant money printing was almost never a plague that reached the dominant world power; it was typically limited to developing countries.

So, yes, we saw Brazil, Argentina and others run giant budget deficits and finance them with paper money.

But we never saw world’s DOMINANT economic power running the printing presses 24/7 like they are today.

That’s why, I recently showed you this chart, illustrating the sheer enormity of the problem — especially in the United States …


Data: Federal Reserve’s most recent Flow of Funds report (Table L.108, pdf page 83, line 1, “Total financial assets”), plus the Fed’s historic yearly data on the same series going back to 1945.

The chart shows the five-year growth rate in financial assets of the U.S. Federal Reserve since 1950. And it demonstrates the incredible, unmistakable, inexcusable expansion of the Fed’s role — in three distinct eras:

Era of monetary stability (1950 – 1963): On average, the Fed grew its financial assets by only 3.4% every five years.

Result: Inflation and interest rates were very tame. Any speculative bubbles and busts were limited to niche sectors. Recessions were relatively mild. And the U.S. dollar was king in the global economy.

Era of monetary expansion (1964 – 2007): The Fed began expanding its balance sheet at a rapid pace — by an average of 37.2% every five years, or ELEVEN times faster than in the prior era of monetary stability!

Result: Inflation surged and interest rates went through the roof. Moreover, toward the end of the period, two boom-bust cycles and the worst recession since the Great Depression nearly destroyed America’s middle class. The U.S. dollar fell precipitously and America’s global leadership became a shadow of its former self.

Era of monetary EXPLOSION (2008 – present): Chairman Ben Bernanke, true to his nickname “Helicopter Ben,” has expanded the Fed’s financial assets at an average five-year clip of 194.9%!

That is now FIFTY-SEVEN times faster than the pace of growth recorded during the era of monetary stability!

Result: Unknown and unimaginable.

And as if this weren’t enough to rekindle some of the worst inflation of our lifetime, look at what the world’s other powerful central banks are doing …

European Central Bank’s QE2 
Is Far Larger Than Its QE1!


While the Fed launched QE1 with a big bang in September 2008, the European Central Bank (ECB) grew its assets from 1.9 trillion euros (nearly $2.8 trillion) on August 31, 2008 to only 2.6 trillion euros ($3.4 trillion) two months later — the greatest increase since in Europe since Weimar Germany.

Then, beginning on April 29, 2011, the ECB accelerated their money printing, and today their balance sheet is up to 4 trillion euros ($5.1 trillion)!

What used to be the world’s most “conservative” major central bank is now printing money at an even more rapid pace than Helicopter Ben himself!

The bank of England, the Bank of Japan and other central banks all around the world are following a similar pattern.

Total Balance Sheets of the Four
Central Banks: More Than $10 Trillion!

That’s $10 trillion in paper money that’s been pumped into the global economy!

I cannot stress enough how unprecedented this is.

Even in the early 1930s, when the nation’s entire banking system shut down … and even in the early 1980s, when hundreds of U.S. banks were failing each year, the Fed and other central banks never went this far.

But here’s the greatest irony of all: It’s not working.

Or, at best, it’s running into the law of diminishing returns — more money, less results.

Shock and Awe

Think how utterly disappointing — and shocking — that must be for the masterminds behind this giant global money operation!

They had hoped that, after dumping all these trillions into their economies, they would have created a respectable boom.

But we see nothing of the kind!

Instead, the U.S. economy is stumbling, Japan’s economy is dead in the water, and Europe’s has sunk into the long-feared double-dip recession.

What most people don’t realize is that the global economic weakness is actually a blessing in disguise … because without it, the dramatic expansion of money printing would already be causing an equally dramatic explosion in prices.

What to Do

First, remember that you can’t expect inflation to suddenly appear immediately. But also remember no one will be ringing any bells to let the world know precisely when the dollar will collapse in value. So you have to be well prepared in advance.

Second, make sure gold is a part of your preparedness strategy. Among all the asset classes, it has been, and should continue to be, the most reliable hedge — not only against inflation, but also against crises of nearly any kind.

Third, be sure gold bullion is at the core of that strategy. Too many investors have replaced bullion with paper derivatives, forgetting that many of those derivatives — especially stocks — can be vulnerable to the vagaries of financial markets.

Good luck and God bless!

Related Tickers: iShares Silver Trust (NYSEARCA:SLV), ProShares Ultra Silver (NYSEARCA:AGQ), SPDR Gold Trust (NYSEARCA:GLD), ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA:TBT), iShares Gold Trust (NYSEARCA:IAU).

Written By Martin D. Weiss From Money And Markets

Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, and Michael Larson. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

This investment news is brought to you by Money and MarketsMoney and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

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